12 Tips For Drafting Your First Employee Agreement

What one tip do you have for a newbie entrepreneur who is drafting up an employment agreement for their first hire?

1. Make a Contract That Matches Your Corporate Culture

“You should write a contract with terms that reflect the type of corporate culture you want. Using a competitor’s contract won’t set you apart and can hurt you in the long run. Let’s keep in mind that you will need to use standard legal language, but when it comes to specific terms like hours of work, personal time off, etc., these terms should demonstrate the culture you want.”

2. Don’t Just Google It

“Think of each employee as an investment: They are perhaps the most important resource in your company. If you were taking money from an investor, you’d certainly take the time to make sure that deal was done well. And the same goes for employees. Make sure you get the form agreements set up correctly (with the help of an attorney or HR pro) right away. It’s an investment!”

3. Don’t Recycle

“It’s tempting to take another entrepreneur’s contract and just change the names, but in the case of legal agreements, recycling is bad. Your business is on the line for every document you sign, so make sure you get an agreement that is designed to protect YOUR business interests and needs. A good lawyer will help you craft several agreements for employees in different positions so you’re all set.”

4. Lawyer Up

“Get a lawyer. Hiring with the wrong legal documents can hurt you later during due diligence for investments or acquisitions, especially when it comes to things like employee stock options. Many lawyers offer generic templates, meaning these agreements may be less expensive than you expect.”

5. Decide: Employee or Independent Contractor?

“There is a major difference in the way the law treats employees and independent contractors. Decide which category fits your worker, and then tailor the agreement to that relationship (a good lawyer can help you do both of these things). Trying to fit a worker into the “independent contractor” mold when they are in fact an employee can have major negative ramifications for the employer.”

6. Check for Relevant Industry Experience

“When drafting an employment agreement, one critical tip is to ensure you check for relevant experience. You want to ensure you have the right person for the right position. No longer does a college education or a degree signify you are experienced. You need to ensure your applicant has real-world experience in the industry.”

7. Ask Yourself, “What If?”

“Although all entrepreneurs want their first hires to be a perfect match, the reality is that it’s hard to find the right person. Make sure your agreement protects your company in the event that he or she isn’t Mr./Mrs. Right. Draft language to specifically address things like non-compete agreements, non-solicitation of clients, ownership of IP, handling of confidential information and so on.”

8. Stick to Your Priorities

“Entrepreneurship and parenting are all-consuming. Make sure that you really understand your priorities and stick to them. Realize that your three highest priorities are being a parent, being a spouse, and being an entrepreneur. Then ruthlessly cut everything else out of your life until some point in the future when you will have time to reintegrate them into your day-to-day.”

9. Comply With State and Federal Employment Guidelines

“Your employee agreement should at the very least comply with all state and federal employment guidelines. It should also include specific information about any provided employee benefits, along with guidelines for vacations, sick leaves, paid days off and, most importantly, privacy or non-disclosure policies. It’s important to make this document comprehensive and complete.”

10. Just Get It Done

“Worry about building your business, not about legal agreements. Unless you are doing something way outside the norm, use standardized legal agreements (found on Docstoc) and get on with building your company.”

11. Include Vesting Provisions

“Make sure their equity vests over time. Think of it as the prenuptial agreement of a startup marriage. They shouldn’t get any options if they quit (or are fired) within the first year. You want someone who is in it to win it with you.”

12. Cover All Your Bases With an Employment Agreement

“Understand the specific employment laws for your state. Specify the name and nature of the position being contracted. Clearly define the expected duties, salary, time commitment, confidentiality, benefits, expenses, terms of termination and self-termination. Make it legally binding with signatures from both parties.”

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The Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world's most promising young entrepreneurs. In partnership with Citi, YEC recently launched StartupCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.